Methodology of decomposition in KLEMS productivity accounts for the Polish economy
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The Department of Macroeconomic Studies and Finance of Statistics Poland, within the so called „experimental statistics”, carries out studies to implement KLEMS economic productivity accounts in the Polish conditions. These accounts are based on the neoclassical concept of economic growth decomposition initiated by Robert Solow and developed methodologically by Dale Jorgenson and associates.
The economic growth decomposition in KLEMS accounts can take the shape of a gross value added (GVA) growth decomposition or a gross output growth decomposition. For Poland, during the implementation of KLEMS accounts, the GVA decomposition, being the essential part of KLEMS accounts, was performed. When developing the accounts, an enhanced decomposition of the labour factor contribution was carried out in addition. Lastly, however, also the above mentioned gross output growth decomposition was also achieved.
The KLEMS accounts deliver fundamental macroeconomic and mesoeconomic information (according to NACE 2 subdivisions) on the economy and thus represent an important assisting tool for the economic growth researcher. The decomposition of economic growth allows to identify its sources, and therefore allows indirectly to interpret its causes. It can be a basis for numerous analyses and studies on economic growth, and also be used for international comparisons with the other countries carrying out these accounts.
GVA growth decomposition:
In the Polish conditions this accounting was done in four methodological versions:
A – Capital without residential capital (without dwellings), labour quality understood as labour composition
B – Capital with residential capital (with dwellings), labour quality understood as labour composition
C – Capital without residential capital (without dwellings), labour quality understood as labour compensation level
D – Capital with residential capital (with dwellings), labour quality understood as labour compensation level
In the attachments tables A, B, C and D concern the contributions to aggregate gross value added growth, whereas tables A’, B’, C’ and D’ concern the contributions to industries’ gross value added growths.
The specifics of Polish dwelling market suggest that in Polish conditions it is rather appropriate to carry out the decomposition of economic growth without dwellings in the capital stock (graphs and tables A and C or A’ and C’). However, for international comparisons they should be included (graphs B and D or B’ and D’) since this is the way which is proceeded for the other countries involved in KLEMS accounting. Labour quality in the traditional KLEMS accounts is understood as labour composition (graphs and tables A and B or A’ and B’), i.e. the structure of labour factor by sex, age and education attainment groups. However, changes in labour hourly remuneration levels (graphs and tables C and D or C’ and D’) can also be interpreted as changes in labour effectiveness that consider more elements than resulting from labour quality.
Development of labour factor decomposition:
In the traditional KLEMS productivity accounting the labour factor is decomposed into the contributions of hours worked (H) and labour composition (LC). For Poland, were performed additionally, in a hierarchical way, a decomposition of labour compensation (LR) contribution to GVA into the contributions of remunerations level (SC) and labour (L); then a decomposition of labour (L) contribution into the contributions of labour composition (LC) and hours worked (H) and a decomposition of hours worked (H) contribution into the contributions of the number of employees (M) and the number of hours worked per employee (H/M). The tables for this decomposition are marked by E for labour contributions to aggregate value added, and by E’ for contributions aggregate value added by industries.
Gross output growth decomposition:
The access to intermediate consumption deflators made the above mentioned gross output growth decomposition feasible. This decomposition allows to clear the contribution of MFP to gross value added growth from possible impact of substitution between the production factors and the intermediate consumption. Some new avenues for analysing economic processes are also opening. The tables for this decomposition are marked by A to D and by A’ to D’ in a the same way as for gross value added growth decomposition tables.
